Question 1

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Accepted Answer

A)  0.9 percent. 
B)  2.8 percent. 
C)  8.0 percent. 
D)  40 percent. 
A)  0.9 percent. 
B)  2.8 percent. 
C)  8.0 percent. 
D)  40 percent.

Question 2

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Accepted Answer

A)  the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. 
B)  neither the number of apples nor the number of pears bought by the typical consumer changes from year to year. 
C)  the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year. 
D)  neither the price of apples nor the price of pears changes from year to year. 
A)  the number of apples bought by the typical consumer is equal to the number of pears bought by the typical consumer in each year. 
B)  neither the number of apples nor the number of pears bought by the typical consumer changes from year to year. 
C)  the percentage change in the price of apples is equal to the percentage change in the price of pears from year to year. 
D)  neither the price of apples nor the price of pears changes from year to year.

Question 3

The value of the consumer price index increased from 140 to 147 during 2006. Nathan opened a bank account at the beginning of 2006, and at the end of 2006 his account balance was $12,840. The purchasing power of Nathan's account increased by 2 percent during the year. We can conclude that Nathan opened his account with a deposit of $11,500 at the beginning of 2006.

Accepted Answer

A) True 
 B)False

Question 4

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Accepted Answer

A)  new goods and services are always of higher quality than existing goods and services. 
B)  new goods and services cost less than existing goods and services. 
C)  new goods and services cost more than existing goods and services. 
D)  when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living. 
A)  new goods and services are always of higher quality than existing goods and services. 
B)  new goods and services cost less than existing goods and services. 
C)  new goods and services cost more than existing goods and services. 
D)  when a new good is introduced, it gives consumers greater choice, thus reducing the amount they must spend to maintain their standard of living.

Question 5

Which of the following statements about real and nominal interest rates is correct?

Accepted Answer

A)  Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B)  Real interest rates and nominal interest rates must be positive. 
C)  Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D)  Real interest rates and nominal interest rates can be either positive or negative. 
A)  Real interest rates can be either positive or negative, but nominal interest rates must be positive. 
B)  Real interest rates and nominal interest rates must be positive. 
C)  Real interest rates must be positive, but nominal interest rates can be either positive or negative. 
D)  Real interest rates and nominal interest rates can be either positive or negative.

Question 6

For any given year, the CPI is the price of the basket of goods and services in the

Accepted Answer

A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100. 
A)  given year divided by the price of the basket in the base year, then multiplied by 100. 
B)  given year divided by the price of the basket in the previous year, then multiplied by 100. 
C)  base year divided by the price of the basket in the given year, then multiplied by 100. 
D)  previous year divided by the price of the basket in the given year, then multiplied by 100.

Question 7

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Accepted Answer

A)  Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate. 
B)  Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index. 
C)  Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. 
D)  Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index. 
A)  Choose a base year, update the basket, find the prices, estimate the basket's cost, compute the index, and compute the inflation rate. 
B)  Choose a base year, fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and compute the index. 
C)  Fix the basket, find the prices, compute the basket's cost, choose a base year and compute the index, and compute the inflation rate. 
D)  Fix the basket, find the prices, compute the inflation rate, compute the basket's cost, and choose a base year and compute the index.

Question 8

Scenario 24-6
A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year.
  
-Refer to Scenario 24-6. Using 2011 as the base year, what is the CPI in each year?

Accepted Answer

The CPI is

Question 9

Which of the following agencies calculates the CPI?

Accepted Answer

A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records 
A)  Bureau of Labor Statistics 
B)  Congressional Budget Office 
C)  Federal Reserve 
D)  Bureau of National Price Standards and Records

Question 10

The price index that measures the cost of a basket of goods and services bought by firms is called the

Accepted Answer

A)  industrial price index. 
B)  producer price index. 
C)  core price index. 
D)  GDP deflator. 
A)  industrial price index. 
B)  producer price index. 
C)  core price index. 
D)  GDP deflator.

Question 11

Which of the following statements is correct about the relationship between inflation and interest rates?

Accepted Answer

A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation. 
A)  There is no relationship between inflation and interest rates. 
B)  The interest rate is determined by the rate of inflation. 
C)  In order to fully understand inflation, we need to know how to correct for the effects of interest rates. 
D)  In order to fully understand interest rates, we need to know how to correct for the effects of inflation.

Question 12

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Accepted Answer

A) True 
 B)False

Question 13

Why does the GDP deflator give a different rate of inflation than the CPI?

Accepted Answer

The GDP deflator and the CPI differ in t

Question 14

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below.
  
-Refer to Table 24-12. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Accepted Answer

A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6. 
A)  171.2. 
B)  175.0. 
C)  177.5. 
D)  180.6.

Question 15

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Accepted Answer

A)  did not change if the inflation rate was 20 percent. 
B)  decreased if the inflation rate was -5 percent. 
C)  increased if the inflation rate was 22 percent. 
D)  More than one of the above is correct. 
A)  did not change if the inflation rate was 20 percent. 
B)  decreased if the inflation rate was -5 percent. 
C)  increased if the inflation rate was 22 percent. 
D)  More than one of the above is correct.

Question 16

Which of the following statements is correct?
a. The CPI can be used to compare dollar figures from different points in time.
b. The percentage change in the CPI is a measure of the inflation rate, but the percentage change in the GDP deflator is not a measure of the inflation rate.
c. Compared to the consumer price index CPI), the GDP deflator is the more common gauge of inflation.
d. The GDP deflator better reflects the goods and services bought by consumers than does the CPI.

Accepted Answer

The answer of Which of the following statements is correct?
a....

Question 17

Consternation Corporation has an agreement with its workers to index completely the wage of its employees using the CPI. Consternation Corporation currently pays its production line workers $7.50 an hour and is scheduled to index their wages today. If the CPI is currently 130 and was 125 a year ago, the firm should increase the hourly wages of its workers by

Accepted Answer

A)  $0.04. 
B)  $0.29. 
C)  $0.30. 
D)  $0.50. 
A)  $0.04. 
B)  $0.29. 
C)  $0.30. 
D)  $0.50.

Question 18

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Accepted Answer

A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 1.5 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future. 
A)  GDP will increase in 2011. 
B)  the producer price index will increase by more than 1.5 percent in 2011. 
C)  interest rates will decrease in the future. 
D)  the consumer price index will increase in the future.

Question 19

Which of the following is correct?

Accepted Answer

A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is. 
A)  The GDP deflator is better than the CPI at reflecting the goods and services bought by consumers. 
B)  The CPI is better than the GDP deflator at reflecting the goods and services bought by consumers. 
C)  The GDP deflator and the CPI are equally good at reflecting the goods and services bought by consumers. 
D)  The GDP deflator is more commonly used as a gauge of inflation than the CPI is.

Question 20

What measure reflects the overall cost of goods and services produced domestically?

Accepted Answer

The answer of What measure reflects the overall cost of...

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Which of the following statements about real and nominal interest rates is correct?

For any given year, the CPI is the price of the basket of goods and services in the

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the CPI in each year?

Which of the following agencies calculates the CPI?

The price index that measures the cost of a basket of goods and services bought by firms is called the

Which of the following statements is correct about the relationship between inflation and interest rates?

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Why does the GDP deflator give a different rate of inflation than the CPI?

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Which of the following is correct?

What measure reflects the overall cost of goods and services produced domestically?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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Exam 6: Measuring the Cost of Living

If the cost of medical care increases by 40 percent, then, other things the same, the CPI is likely to increase by about

Consider a small economy in which consumers buy only two goods: apples and pears. In order to compute the consumer price index for this economy for two or more consecutive years, we assume that

Because the CPI is based on a fixed basket of goods, the introduction of new goods and services in the economy causes the CPI to overestimate the cost of living. This is so because

Which of the following statements about real and nominal interest rates is correct?

For any given year, the CPI is the price of the basket of goods and services in the

The steps involved in calculating the consumer price index and the inflation rate, in order, are as follows:

Scenario 24-6 A small economy produced and consumed goods X and Y in 2010 and 2011 in the amounts shown in the table below. Assume that the market basket for the CPI is defined in the base year. -Refer to Scenario 24-6. Using 2011 as the base year, what is the CPI in each year?

Which of the following agencies calculates the CPI?

The price index that measures the cost of a basket of goods and services bought by firms is called the

Which of the following statements is correct about the relationship between inflation and interest rates?

In the U.S., when the price of oil rises, the CPI rises by much more than does the GDP deflator.

Why does the GDP deflator give a different rate of inflation than the CPI?

Table 24-12. Will's expenditures on food for three consecutive years, along with other values, are presented in the table below. -Refer to Table 24-12. Suppose Will's 2010 food expenditures in 2011 dollars amount to $6,235. Then x, the consumer price index for 2011, has a value of

Rosa deposits $100 in a bank account that pays an annual interest rate of 20 percent. A year later, after Rosa has accumulated $20 in interest, she withdraws her $120. Rosa's purchasing power

Suppose that in 2010, the producer price index increases by 1.5 percent. As a result, economists most likely will predict that

Which of the following is correct?

What measure reflects the overall cost of goods and services produced domestically?

Ten Principles of Economics

Thinking Like an Economist

Interdependence and the Gains From Trade

The Market Forces of Supply and Demand

Measuring a Nations Income

Production and Growth

Saving, Investment, and the Financial System

The Basic Tools of Finance

Unemployment and Its Natural Rate

The Monetary System

Money Growth and Inflation

Open-Economy Macroeconomics: Basic Concepts

A Macroeconomic Theory of the Open Economy

Aggregate Demand and Aggregate Supply

The Influence of Monetary and Fiscal Policy on Aggregate Demand

The Short-Run Tradeoff Between Inflation and Unemployment

Six Debates Over Macroeconomic Policy

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